7 Signs You May Want to Reconsider Your Advisory Platform

An advisory platform is supposed to make life easier.

It should help an advisor manage client assets efficiently, access quality investment strategies, simplify trading and administration, and create more time for financial planning, client relationships and business growth.

For many practices, the right platform may accomplish exactly that. But not every advisory platform is built around the needs of every advisor, or the individual circumstances of every client.

Some platforms are designed primarily to create consistency and efficiency for the home office. Others are built around a narrow form of outsourced investment management. Some provide a long list of investment strategies but limited support for combining them into thoughtfully constructed models. Others introduce transaction charges, operating restrictions and administrative complexity that can influence the way an advisor manages client portfolios and operates the practice.

Your platform may not be broken, however it may be quietly shaping how you trade, customize, scale, and serve clients. A platform may appear turnkey while quietly creating a different kind of work.

At USA Financial, we see many advisors wrestling with the same tension: they want scale, but not at the expense of flexibility. That is why platform fit has to be evaluated through the lens of control, support, risk, and day-to-day operating efficiency.

The question is not whether outsourcing is good or bad. It is not whether model portfolios are appropriate. It is not whether advisors should always manage investments themselves.

The more important question is:

Does your advisory platform give you the flexibility, expertise, and support to operate your practice and serve your clients the way you believe is best?

Here are seven signs the answer may be no.

1. Transaction charges can influence the decision to trade

Consider a platform that charges an ongoing asset-based platform fee while also imposing ticket charges when certain transactions occur.

Who pays the ticket charge?

When the advisor absorbs it, every transaction reduces the advisor’s revenue.

That can create an economic incentive (consciously or unconsciously) to trade less frequently. More trading is certainly not always better, but the decision to make or avoid a trade should be based on the client’s circumstances, not the financial effect on the advisor.

The alternative structure can introduce a different complication.

When the client pays each ticket charge, the client may become reluctant to approve an appropriate change because of the visible transaction cost. The advisor may also hesitate to recommend a trade that creates an additional expense for the client.

Neither arrangement means the advisor will provide conflicted advice. Ethical advisors identify and navigate potential conflicts every day. But a platform should be evaluated partly by the incentives its pricing structure creates.

The SEC has specifically identified potential conflicts in wrap-fee programs when an advisor responsible for trading costs has an incentive to trade less frequently. The SEC has also highlighted situations in which clients incur transaction expenses in addition to an ongoing wrap or platform fee.

The appropriate question is not simply “Does the platform charge ticket fees?”

It is: “Could the pricing arrangement influence a decision that should be driven by the client’s needs?”

A cleaner economic structure does not eliminate every conflict. But it can make it easier to keep the investment decision focused where it belongs.

2. Outsourcing is the only available path

Outsourcing investment management can be incredibly valuable. It can give advisors access to professional asset managers, institutional research, specialized capabilities and disciplined investment processes. It may also allow the advisor to spend more time on planning, relationships and business development.

The problem is not outsourcing. The problem is outsourcing without optionality.

Some advisory platforms permit advisors to select among approved third-party strategies but provide little or no ability to:

• Build an advisor-directed model
• Manage an individual portfolio
• Select individual securities
• Customize an allocation
• Retain responsibility for a portion of the portfolio
• Combine outsourced and advisor-managed sleeves
• Accommodate clients who do not fit the platform’s standard approach

Some platforms force advisors into a single investment management philosophy. Two separate entities that USA Financial owns are USA Financial Securities and USA Financial Exchange, both of which are Registered Investment Advisers. Utilizing USA Financial Securities, a retail investment adviser, or USA Financial Exchange, a Turnkey Asset Management Platform (TAMP), affiliated financial advisors can choose to manage assets themselves, use third-party managers, or combine both approaches within the same platform depending on the needs of the client

One advisor may want to outsource nearly every investment-management function. Another may possess a well-defined investment process that is central to the practice’s value proposition. A third may want to outsource certain asset classes or portfolio sleeves while personally managing others. All three approaches can be legitimate. An advisor should be able to decide what to outsource, when to outsource it and when retaining control may produce a more appropriate client experience.